As the Cyprus bank deposit scandal continues to play out, investors in Europe are continuing to feel a bit nervous, as evidenced by foreign markets’ reactions today. Here in the U.S., the early gains we saw this morning fizzled as the morning went on. We did see a quick dip into the red, but buyers did step in and got the indices to close off the session lows.
From a stock-specific news standpoint, Walgreen Co. (WAG) saw investor enthusiasm following the drug retailing giant’s earnings results and news of a joint venture with AmerisourceBergen (ABC), which had those shares up as well. The same couldn’t be said for Cardinal Health (CAH), seen as the loser in Walgreen’s new arrangement. Elsewhere, cautious Wall Street commentary has stocks like Kohl’s (KSS), BHP Billiton (BHP), and Deere & Co. (DE) lower.
Most investors tend to think of investing in an odd way when they see particular results for a period of time. We have seen several recent manias come and go: the dotcom boom of the late 90′s, real estate boom in the mid-2000′s, gold and silver prices, etc. Anyone that was participating or has been taking part in these big investment themes could tell you either how great it worked out for them, or how lousy the results ended up being.
In all of these cases, there was a point where evidence made it obvious that trouble had arrived (commodity prices are still hanging in there, but gold and silver prices have been pulling off the highs of a couple of years back). It is in these times when investors must decide to cut and run or stay the course. Some even decide to buy more and catch the proverbial falling sword. In hindsight, it’s easy to identify bad decisions. Still, many bad investments could have been avoided if people just paid more attention to the warning signs.
Markets of all kinds are normally pretty good at sending signals to investors. It’s all in the prices being paid. As prices begin to pull back, you have solid evidence that times could be changing.
In the stock market, sometimes bad stocks can even pull good stocks down with them. Back during the financial crisis of the 2008/2009 time period, investors were selling not just financials, but all other sectors as well. Basically, the whole market was getting flushed (this tends to happen when major negative events happen), and despite some companies not experiencing the long-term concerns facing particular sectors, investors got nervous and raised cash wherever they could anyway. In some cases, the sales made sense, and in others, they didn’t.
Being able to distinguish what you should own and what you should sell when the game changes will sometimes be the difference in how your financial future turns out. That’s why you need to pay close attention to prices and determine whether what you own will remain a formidable investment. Looking ahead with a critical eye is a crucial step in investing. It’s a process you’ll continually embark upon during your investing lifetime.Our 2013 Dividend Stock Guide Has Arrived!
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